Media Decoder: A New Suitor Emerges for Warner Music

With a third round of bidding for the Warner Music Group coming to an end this week, another suitor for the music company has emerged, just as some of the leading bidders are considering withdrawing because of worries over Warner’s finances.

D.M.I., or Digital Music Industries, a consortium led by Bernhard Fritsch, a German-born technology entrepreneur, has made an offer for the company, according to a person involved in the private negotiations who spoke on the condition of anonymity. D.M.I. is made up of managers from GMI, Mr. Fritsch’s merchant bank, along with other private equity and banking investors. The size of D.M.I.’s bid was not known.

At the same time, concerns about Warner’s financial health, and about the outlook for the music business in general, have led Bank of America to consider withdrawing its financing from several companies’ bids, according to two people involved in the talks who asked not to be identified because the bidding process was not over. In addition, the Yucaipa Companies, which has been considered one of the top bidders, may pull out of the auction for the same reason, those people said.

In the last round of bidding, completed three weeks ago, top offers amounted to slightly more than $3 billion, according to several people involved in the talks. Other than Yucaipa, which is led by the supermarket magnate Ron Burkle, the leading bidders include Access Industries, led by Len Blavatnik; and Platinum Equity, led by Tom Gores, which is joined in its bid by the Gores Group, led by Mr. Gores’s brother, Alec Gores.

How many others remain in the auction is unclear. When Warner began accepting offers early this year, it told potential buyers it would accept bids for its recorded music division, its publishing division, or both. But at some point Warner said it wanted to sell the company as a whole. So some of the groups that made partial offers have been trying to pair up with others to make complete bids.

The bidding for Warner got off to a robust start with more than 10 potential buyers. But as the field has narrowed and the buyers have completed their due diligence of the company, concerns have arisen about the deal, according to those two people involved in the talks.

Warner, which has a market capitalization of $1.1 billion, carries nearly $2 billion in debt, according to its most recent annual report. It has reported losses for the last eight quarters.

Spokesmen for Warner and Yucaipa declined to comment.
Mr. Fritsch, 49, founded MCY.com, a digital music distribution company, in 1998, and he sold the company in 2001. His next company, GMI, bid on BMG, Bertelsmann’s last major label, before BMG merged with Sony in 2004. Mr. Fritsch is also the chairman of Star Club, a company in Los Angeles that, according to its Web site, “develops and produces music brands within the interactive media space.”

While Mr. Fritsch and his consortium made an early offer for part of the company, their current status in the auction is unknown. A spokesman for Mr. Fritsch declined to comment.

This post has been revised to reflect the following correction:

Correction: April 28, 2011

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